The bankruptcy bill passed by Congress and signed by president Bush in 2005 makes seeking protection from creditors tougher for people who aren’t corporations. Apparently it also makes seeking protection from people easier for corporations (via Eschaton).
Bear Stearns Cos.’ decision to liquidate two bankrupt hedge funds in the Cayman Islands instead of New York may limit creditors’ and investors’ ability to get their money back.
While most of their assets are in New York, the funds filed for bankruptcy protection July 31 in a court in the Caymans, where they are incorporated. The bank also used a 2005 bankruptcy law to ask a U.S. judge in Manhattan to block all lawsuits against the funds and protect their U.S. assets during the Caymans proceedings.
How convenient. The assets are here, Bear Stearns is here, but the mailing address is in the Caymans. Sorry, foolish investor people: all your monies are belonging to us.
Raise your hand if you think the loophole in the 2005 law is just a happy coincidence.
The obvious lesson here is that ordinary people need to incorporate themselves in the Caymans. And there’s an obvious niche for anyone who can come up with a simple, step-by-step manual showing individuals how to take advantage of loopholes purchased by corporations through tens of millions of dollars in campaign contributions and lobbying payments.
This message brought to you by Weldon Berger, a Cayman Islands Corporation.
Just for fun, we checked to see how the Democratic presidential candidates voted on the bill (link is to Senate vote). Neither New Mexico governor Bill Richardson nor former Alaska senator Mike Gravel seem to have taken a position on the legislation; John Edwards was gone from the Senate by the time the bill came up in 2005, but spoke out against it.
For:
Joe Biden
Against:
Chris Dodd
Barack Obama
Dennis Kucinich
Not Voting:
Hillary Clinton
Clinton was the only senator who didn’t vote on the bill. Given her recent stirring defense of lobbyists and her growing collection of endorsements from financial industry sources, one might suspect her sympathies were not entirely with the little people on this one.
Republicans, whose moral consciences long ago sought and gained bankruptcy protection, voted unanimously for the legislation. That includes Man of the People presidential candidate Ron Paul.
Identifying the author of the provision Bear Stearns wants to expolit may be impossible — after several hours of reading through the ironically named Bankruptcy Abuse Prevention and Consumer Protection Act, I can’t even figure out which provision it is; any help? Bueller? — and we’ll never know whether or not whoever dreamed it up had a specific eventuality in mind or was simply covering the bases, but you have to admire their foresight in any event. Unsung heroes who offer an enormous return on investment.
The estimated cost of the legislation was about $400 million over four years. Maybe someone will ask the Congressional Budget Office to revise their numbers if the Bear Stearns gambit succeeds. Given the precarious state of the housing and mortgage markets, the company is likely to spawn a lot of imitators.
Thankfully, though, creditors of ordinary mortals are still protected: the wave of individual homeowners going into foreclosure and bankruptcy without having had the savvy to get that Cayman Islands business address will suffer the punishment they so richly deserve. Oohrah.
[...] from btcnews [...]
Bueller to the rescue. Maybe it’s this part:
These provisions are repeated when the U.S. court recognizes the jurisdiction of the foreign court.
Looks like the bear’s fat ass has been fully covered.
I, too, love the irony of the name.
Juliet was on to something. And she could have used skunks as an example. I mean, there’s the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (it’s all in the acronym – Pepto Bismol will work on your nausea).
And its successor: the USA PATRIOT Improvement and Reauthorization Act (to improve and reauthorize all of us patriots, I guess).
There’s the Iran Freedom Support Act – guess what its goal is (hint: first word starts with “r”, second word starts with “c”) – which Dennis Kucinich called “a steppingstone to war,” but which got the support of, among others, John Conyers, Maxine Waters, Jack Murtha, Bernie Sanders, Barbara Lee, and Lynn Woolsey.
The No Child Left Behind Act. No comment. Lotta Democrats voted for this one.
The new Department of Homeland Security (“homeland” has such a warm and fuzzy apple pie ring to it, but it’s a bit disingenuous: why didn’t they just surrender to their initial impulse and call it Fatherland, or Motherland?).
Let’s not forget the Economic Growth and Tax Relief Reconciliation Act of 2001 – we all knew who got the tax relief and economic growth out of this one: people like the ones who run places like Bear Stearns. It’s the old trickle-down economics theory out of the University of Chicago. You know, the one where the bear’s pee trickles down on all of us.
Um, lessee…oh yeah. The Military Commissions Act. It’s meant to “facilitate bringing to justice terrorists and other unlawful enemy combatants through full and fair trials by military commissions, and for other purposes.” About those “other purposes.” There’s one that prohibits invoking the Geneva Conventions when you file a petition for habeas corpus. Another provision prohibits granting of habeas corpus for enemy combants (and people whose combatant status the government can’t quite figure out).
Or the Healthy Forests Restoration Act of 2003, opposed by notorious tree-haters the Sierra Club, Natural Resources Defense Council, The Wilderness Society and the John Muir Project.
I like this one: The Secure Fence Act. Hey, we all need good fences! Good fences make good neighbors, right? Robert Frost said that. This particular secure fence is 700 miles long along the border with our good neighbor to the south.
I also like the Class Action Fairness Act. That’s the one that Rep. Ed Markey said is “the final payback to the tobacco industry, to the asbestos industry, to the oil industry, to the chemical industry, at the expense of ordinary families who need to be able go to court to protect their loved ones when their health has been compromised.” Fair? Hell, what’s in a name? Dianne Feinstein voted for this one (she’s on a roll); so did Chris Dodd, Barack Obama (yikes!), Chuck Schumer, John Rockefeller, a few other Dems.
Oh! How about this one? The Medicare Prescription Drug, Improvement, and Modernization Act. Originally introduced as the Insurance and Pharmaceutical Industry Welfare and Profit Protection Act. The sponsors changed the name. “It’s just a name after all,” they said, “and what’s in a name?”
Let’s take another example of a name. Any name. Say, Democrat. What’s in a name?
There’s another irony here, beyond the fact that while this law was pushed by large financial corporations and sold as a way to stop irresponsible middle-class Americans from abusing bankruptcy laws when they overspend on credit – despite the fact that one million Americans each year go into bankruptcy because of medical bills (and 75 percent of them have health insurance, but that’s another story…) – this law contains an unnoticed and very conveniently written section that shelters the assets of a massive financial firm conveniently headquartered offshore.
How ironic that a Bear Stearns wallowed in an equivalent of easy credit – subpar loans – and then found itself in deep doo-doo. Why, that’s a bit like the credit consumers whom the sponsors of the law (that would be not only members of Congress but the lobbyists who wrote the bill) blame for all the ills of financial services companies.
It’s the middle-class credit-happy folks – maxing out their MasterCards on medical bills because the insurance companies have written laws that make sure insurance companies only have to collect premiums, not pay claims – who are now far less able to declare bankruptcy.
And it’s corporations – gorging on high-interest sub-par loans – who find it easier to declare bankruptcy.
And another irony: This law had its genesis in the United Nations.
!! What? you say? B-b-b-but this is a Republican law! They hate the U.N.!
Well, yes, they do. Most of the time. Sometimes, though, the U.N. can come in real handy. So can Democrats, who lu-u-u-v the U.N. and, I guess, are so happy that when the Republicans say, “Hey, y’know this U.N. model law looks pretty good to us. How ’bout voting for it?” the Democrats fall all over themselves jumping on the born-again Republican U.N. Love Train.
It couldn’t have been because Joe Biden, for example, took $326,050 from the securities and investment industry from 2001-2006. Or because Democratic co-sponsor Thomas Carper, also of Delaware – America’s own offshore banking state – took $261,082 from that same industry and $191,427 from the finance and credit industry (they need all that money just to run every six years in a teeny-tiny itty-bitty state like Delaware? I mean, I didn’t know it was that far offshore). Ben Nelson’s another Democratic co-sponsor: that $258,499 from the securities and investment industry surely had nothing to do with his vote. Ken Salazar, Colorado’s version of a Democrat, took $381,393 from that industry, but he loved the bill, not the money!
Back to the bill: The United Nations Commission on International Trade Law in 1997 wrote up something called UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment.
This found its way into a little bitty part of this 91,321-word more-or-less law (I copied and pasted it into Word, and it froze Word) – it’s called Title VIII. It introduces an entirely new chapter of bankruptcy into the U.S. Bankruptcy Code.
Republicans + Democrats + corporations + the U.N. Strange bedfellows. We know this little orgy produced the bastard offspring they named Chapter 15. But which was the whore and which were the johns?
Damn, Ferris. Thanks. More substantive responses to follow.
Lobbyists pay above table
to re-elect , but pay much
more directly to Cayman
bank accts for Congressional
political favors .
… Fernand StGemain ,runner ,
S&L crisis , only $176K above
table ( House Spkr Mr Wright ),
But $12 million direct to his
Cayman acct .
New Pressure on FBOT
( Cayman , BVI ) in 2014 ,
when the $USD collapses .
Hi JPJ – do you have a link for that? And what is FBOT?Free Booty On Time?
June 9, 2005
The Honorable Mike Rogers
Congressman
U.S. House of Representatives
8th District, Michigan
1327 East Michigan Avenue
Lansing, Michigan 48912
Dear Mr. Rogers:
I apologize for not answering your attached response earlier than now. Wide bipartisan support does not grant the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act legitimacy or make the flawed attempt to fix an issue, requiring no fix whatsoever, correct either. To set the record straight, in Michigan all Democratic Congressmen voted against the bill while all Republicans voted for it. I am sure you know this already or at least the staffer who wrote your answer knows this factoid.
The federal government has become the debt collector of record for the financial industry sharks (such as MBNA, Visa, Ford Motor Credit, etc.) as detailed in this new act. Since the financial industry has been experiencing record profits I hardly think Congress needs to incur another $400 million in deficit spending to help them out when this money can be more aptly spent on helping to fund federally mandated programs in Michigan such as “No Child Left Behind”, “Individuals with Disabilities Education Act (IDEA).”, “The Help America Vote Act”, “Medicaid,” or potentially help Michigan reduce the highest unemployment rate in the nation by attracting new industry to it. These under funded federally mandated programs have cost Michigan ~$3.3 billion dollars from 2001 through fiscal 2005 as reported by the CBPP, a centrist think tank. Please help your state and its people out sir!
In reviewing your comments, I would add the following:
- “In fact last year 1.4 million people filed for bankruptcy that is more filings than during the Great Depression.”
The 1.4 million people going bankrupt quoted by you is a statistic for 2001 non-business bankruptcies. Actual non-business bankruptcies for 2004 were ~1.563 million down ~3.8% from 2003 which was 1.625 million. Since the Great Depression, we have truly become the ownership society that President Bush envisions and also long before this phrase was coined by him. In 2005, more people own cars, homes, vacation homes, boats, airplanes, 401ks, etc as a percentage of the population than during that period of time up to WW II called the Great Depression. Far fewer people during the Great Depression had assets worthy of going through bankruptcy and the cost of processing bankruptcy proceedings was expensive so they just walked away. The comparison of the Great Depression Bankruptcy rates to 2004 Bankruptcy rates is an apples to oranges comparison.
- “This explosion in bankruptcy filing cost every American family $400 last year alone.”
Why would you cite unsubstantiated financial industry statistics from 1997 as put forth by the WEFA (financial industry organization) in 1998?? Both the G.A.O. and the C.B.O. have stated this loss number remains unsubstantiated by the financial industry and repeated requests for the basis of this number have not been answered. Why would you choose industry propaganda over the independent reports of your own organizations, the C.B.O. and the G.A.O.?
- “This common sense, bipartisan legislation restores personal responsibility to the bankruptcy process by requiring requiring filers to meet a basic means test, and prove they do not have the income to pay their debts before granting them bankruptcy protections.”
Why is it so important to allow those who can have Asset Protection Trust Funds the continued capability of hiding their assets (homes, vacation homes, cars, boats, art, etc.) from the Bankruptcy Abuse Prevention and Consumer Act if they declare bankruptcy? Does this exclusivity for the wealthy make good, common sense? The “basic means test” does not determine who gets bankruptcy protection; however, it does determine who will be granted either Chapter 7 or Chapter 13 bankruptcy protection. It has been estimated by the A.B.I. that this act may capture an additional 3% of those abusing bankruptcy and an ~10% of the often cited $400 per consumer financial industry statistic. Common sense would dictate a better return. The previous law was doing the job.
- ”Additionally, this legislation provides special protection for farmers and people with extraordinary medical expenses.”
This statement is not quite true for a couple of reasons. The bill offers protection for “on-going” and not “past” medical expenses. Because of the stigma attached to declaring bankruptcy, most people will not declare bankruptcy until it is too late. As reported by the A.B.I., the average citizen would sacrifice food, clothing, healthcare, and be late in paying bills rather than go bankrupt. People still do not like to go bankrupt. Illness, personal injury, loss of job (Michigan-highest unemployment), divorce are the most cited reasons for doing so with the fastest growing segment of the population doing so being the elderly. The caveat of “special protection” is limited in scope and its ability to protect, is untested in court, and still can be contested by a creditor and changed.
There are many things that you as a Congressman can do for Michigan and its people rather than vote the main stream thereby punishing the very constituency voting you into office. As one issue, I have suggested the full funding of federally mandated programs as something that will bring relief to Michigan by reducing the strain on state funds used to supplement these programs as required by federal law. The under funding of these federal programs has seriously impeded Michigan’s ability to meet its responsibilities, attacks its unemployment problems, and imedes it in attracting new industry. The Bankruptcy Abuse Prevention and Consumer Act plays against these issues and is not a good act.
Thank you for your time and consideration.
Sincerely,
Me
I was not able to find my posts on Bankruptcy
“Scrooged” Again by Congress and the Pres
“Why has the public not taken their anger out on congressional Republicans and the president? We think the answer lies with voters’ deeper feelings about the Democrats who appear to lack direction, conviction, values, advocacy or a larger public purpose.” Carville-Greenberg memo.
In a vote of 302 to 126, the House of Representatives voted into law the Bankruptcy Abuse Prevention and Consumer Protection Act April 14, 2005 continuing the attack on the lower and middle taxpayers of the US. Joining the Republicans were a number of House Democrats in passage of a bill doing little to protect the average consumer and attacking an issue already covered by the present Bankruptcy Laws. Citing reasons such as:
• “bankruptcy abuse and force individuals to take more personal responsibility,” 10% abuse bankruptcy as cited by the industry.
• “deadbeats can get out of paying their debt scot-free while honest Americans who play by the rules have to foot the bill.” Senator Chuck Grassley, R-Iowa
• “pegged at $400/year as the cost to each consumer”
• “too many Americans have been copying big business – and they shouldn’t be allowed to do that.” Fortune Magazine Editor, Andy Serwer
• “Bankruptcy grew to over 1.6 million in 2003 or 1 in every 73 households 5 times what it was in 1980.”
A small minority of those who file for bankruptcy actually abuse the system. Most are filing because of illness or injury, “un or under employment,” or divorce. Approximately 54% of the bankruptcies are the result of illness or injuries and the resulting financial problems of which ~28% of the resulted from injury or illness; ~8% resulted from the addition of a new member to the family; ~8% resulted from the death of a family member; 2.5% result from drug addiction; and ~1% resulted from gambling addiction. Many had no health insurance, lost it before bankruptcy, or coverage was limited. Add to this another 33% of filers being un or under employed. The balance or 9% are filing for other legitimate difficulties such as military service (Iraq), victim of crime, death in the family, natural disaster, etc. While the financial industry maintains it is the higher income individuals claiming bankruptcy, since 1980 the average income of those claiming bankruptcy has been decreasing. These people are not driving the big shiny Cadillacs (as Reagan storied with welfare) abusing the credit system as alluded to by the Republican Party and supported by many of the Democrats who also have moneyed interests and lost the true meaning of being a Democrat. Most of the filers going into bankruptcy have serious medical and/or employment issues.
Credit card debt and spendthrifts scamming and abusing the system is in the extreme minority of causes for bankruptcy. While it is true there was some abuse of the old system, it has been estimated to be less than 4% of the total claiming bankruptcy (ability to pay back) the impact of which was less than 2 tenths of 1% in failure to pay back or write offs as detailed by the NC State Employees Credit Union. The new legislation itself will impact 5% of all Chapter 7 filings forcing them into Chapter 13. On the surface, the new bill appears to be innocuous; however:
• It does not come free and will add between $300 to 400 million (CBO) in additional deficit spending. Small potatoes in comparison to some deficit creating programs; but still an issue when this administration blames discretionary spending as being the root of all spending.
• It allows wealthy individuals who scam the system, can afford to pay, an opportunity to shelter assets. Neither the House nor the Senate chose to add Asset Protection Trusts to bankruptcy action. These off shore and domestic trusts (Alaska, Utah, etc.) allow individuals to shelter assets from lawsuit and bankruptcy. The cost to establish is estimated at $10,000 with yearly administration fees of several thousand per year. Out of reach for 95 % of all taxpayers, Asset Trusts in Alaska alone are estimated to total over $1 billion.
• The new bankruptcy law still allows those who are convicted of protest at abortion clinics to claim bankruptcy and potentially avoid fines. While not being successful in avoiding the fines, people such as Randall Terry and Operation Rescue have used the bankruptcy courts to slow the collection process down and incur legal costs for the claimants.
• Through the creation of new non-dischargeable debt parameters, lengthier burdensome Chapter 13 provisions, and new limitations on the availability of Chapter 7; single parents are placed in greater jeopardy under this bill. For example, no longer is child support and foster care payments exempt from the means test of disposable income. Non-discharge-ability categories make it difficult to eliminate credit card purchases for necessities.
“It’s not lattes: the unforgiving economy and administrative neglect are sending middle-class Americans to the brink – NOT personal irresponsibility.” Drum Major Institute
Who does this new bill impact? It impacts the middle class taxpayers many of who have suffered the loss of jobs and health insurance over the last 5 years. Up till 2001, the BLS Participation Rate grew over the last 40 years indicative of a greater utilization of labor. Since 2001 it has reversed which is indicative of the many people in the Unemployed, Under- employed, and/or Not In Labor Force ranks. Since the 1980s, the number of people with out permanent Healthcare Insurance grew from 29 million to 45 million people. “Middle-class families accounted for approximately 92 percent of the 1.6 million personal bankruptcy filings in 2003.” Drum Major Institute The Middle Class is earning 75% more than in 1970 and spending 20 to 25% less on shelter, clothing and food. The 55 and over age group are the largest group filing for bankruptcy.
References I culled from and Food for Thought:
http://rawstory.com/exclusives/dissenting_views_bankruptcy_405.htm House Judiciary Democrats Dissent from Bankruptcy Bill
http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.63/DC1?maxtoshow=&HITS=10&hits=10&RESULTFORMAT=&fulltext=bankruptcy&andorexactfulltext=and&searchid=1113921088479_1279&stored_search=&FIRSTINDEX=0&resourcetype=1&journalcode=healthaff MarketWatch: Illness And Injury As Contributors To Bankruptcy
http://www.themiddleclass.org/main.cfm?actionId=globalShowStaticContent&screenKey=talking&htmlId=786 Bankruptcy
Now we know why such seemingly astute business people were taking on what appeared to be hugely risky loans at interest rates well below the risk factor. The books were rigged as they had government protection. Upside-down corporate socialism with the sole benefit going to the corporation. Capitalism with a safety net but none for the borrower.
Not only that, but the $60 billion bailout by the Fed can only be paid by inflation. That won’t stop the spin machine from talking about the chances of a rate reduction when they should be talking about a rate increase by the Fed.
This has all of the look and feel of stagflation.
Dallas:
Nice to see you again . . . and yes you are correct. Without the new Bankruptcy Law, most of these loans would not have been made. These people are still on the hook even if they just walk away.